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Analysis and Prediction:

Date of publication: January 21, 2019 | Author: Tim Clayton

Last Week’s Summary

World Economic News Review

US government shutdown continues

The partial Federal government continued with considerable political rancour as House of Representatives speaker Pelosi called on President Trump to delay the State of the Union address while Trump blocked Pelosi’s overseas trip.

Over the weekend, Trump attempted to break the deadlock, although Democrats initially rejected the proposals.


US business sentiment data was mixed with a further decline in the New York Empire survey offset by notable gains for the Philadelphia Fed index.  

The retail sales release was delayed by the government shutdown, but there was underlying stabilisation in confidence surrounding the US outlook and US equities continued to recover ground.

More importantly, there were further concerns surrounding global growth trends and other major currencies which tended to support the US dollar.

China remained in focus

Developments in China continued to have an important impact on markets with current concerns offset by hopes of future action. Weak trade data for December increased concerns surrounding economic developments and the risk of a further slowdown in growth.

Chinese authorities, however, pledged further stimulus which helped stabilise confidence.

There were also some reports that the US Administration was considering lifting tariffs on China, although there were no major announcements.

Expectations of Chinese action support global equity markets while current reservations over demand hampered commodity currencies.


UK CPI inflation data was close to market expectations with a headline decline to 2.1% from 2.3%. Retail sales data was weak for December with 0.9% decline slightly larger than consensus forecasts. Housing data was weaker with Rightmove suggesting that the outlook for the next quarter was the weakest for over 20 years as uncertainty undermined confidence.

Political events dominated during the week with major parliamentary drama.

The government’s EU Brexit Withdrawal Bill was defeated very heavily by 230 votes, the largest defeat in House of Commons history. In response, the opposition Labour Party called a no-confidence motion in Prime Minister’s government. The government survived the vote and May promised to hold discussions with opposition figures.

Sterling declined ahead of the Brexit vote before rallying strongly on expectations that a ‘no-deal’ Brexit would be ruled out in parliament. There was also increased speculation that deadlock could only be broken by the promise of a second referendum or that the EU withdrawal date would have to be delayed beyond March 29.  

In this context, there were further substantial manoeuvres in parliament with MPs looking to block the possibility of a ‘no-deal’ Brexit, although there was inevitably a very high degree of uncertainty.


ECB President Draghi stated that recent economic data had been weaker than expected and that monetary policy needed to be accommodative.

Confidence in the Euro-zone outlook remained weak following weak industrial data and fresh reports that the US would sanction tariffs on EU car exports. With German industry already under pressure due to a slowdown in China, the Euro registered net losses.


The headline Canadian inflation data was slightly higher than consensus forecasts, although with little impact on interest rate expectations.

Oil prices moved higher to 6-week highs as reduced Saudi Arabian production and stronger risk conditions provided support.

Next Week’s Forecast & Events

a Men Looking at Economic Forecast


There are no major data releases due during the week and there should be no comments from Federal Reserve officials on monetary policy with the blackout in force ahead of the interest rate decision due the following week.

Data releases have, however, been delayed by the government shutdown and any resolution of the dispute could lead to postponed data being released.

US politics will remain important

Developments surrounding the government shutdown will be important during the week, especially with the potential for growing impact on the real economy if there is no resolution.

If a compromise can be found, confidence in US assets would be likely to improve to some extent

US-China trade developments will also be an important focus given the impact on risk conditions. Positive developments would limit potential support for defensive currencies such as the Swiss franc and Japanese yen while negative rhetoric would trigger renewed yen gains.


Brexit developments will inevitably be important for Sterling during the week as the timetable becomes increasingly tight ahead of the planned EU withdrawal on March 29th.

Overall, sentiment will tend to strengthen if the potential risks of a ‘no-deal’ Brexit decline further.

Underlying instability will, however, continue and there are a high number of political risk factors, including a government collapse, which could damage UK assets.  

The latest average earnings data is due on Tuesday and would normally have a significant impact on interest rate expectations, although the release is again likely to be overshadowed by political developments.


The latest Euro-zone PMI release is scheduled for Thursday. This will be important given the recent evidence of notable weakness in the economy and sharp declines in industrial production. A further downturn in activity would increase pressure for the ECB to back away from a less accommodative monetary policy.

The central bank will also hold its latest policy meeting on Thursday while President Draghi will appear at his regular press conference. Draghi’s rhetoric will be particularly important for short-term Euro sentiment.


A raft of Chinese data will be release on Monday including GDP and retail sales figures, although the overall impact is likely to be measured with the focus on future trends.

The Bank of Japan will announce its latest policy decision on Wednesday. No change in policy is likely, but markets will be monitoring forward guidance closely.

The latest quarterly New Zealand CPI inflation data will be released on Wednesday local time.

The World Economic Forum (WEF) will be held in Davos and there will be considerable media attention on the event. The forum is often used to drop policy hints, although the evidence suggests that attention may be slightly lower than usual this year, especially with President Trump indicating that he will not now attend.

Currency Forecast for Next Week

Currency pairSpot 1-week forecast1-month forecast


 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.


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